Fed Cuts Rates. But Why Retail Real Estate Still Pays the Real Price?
By Marc Perlof | MarcRetailGuy
November 3, 2025
If you own retail real estate, here’s what just changed for you.
The Federal Reserve just lowered interest rates by a quarter point, the second cut this year, bringing the rate to 3.75%–4.00%³. The Fed also said it will stop reducing its balance sheet on December 1⁴, which should make banks more willing to lend. Inflation is close to 3.0%¹², still above the 2% goal, and the job market is slowing.
That sounds like good news. But for retail real estate, the rate that really matters isn’t the Fed Funds Rate, it’s the 10-Year Treasury yield.
The Hype vs. the Reality
The Fed’s move grabs headlines, but retail investors and developers borrow money based on long-term rates, not short-term ones.
Fed Funds Rate – short-term. Affects credit cards, small loans, and business confidence.
10-Year Treasury Yield – long-term. Sets the base for mortgage and commercial loan rates.
Even if the Fed cuts rates again in December⁵, your loan rate won’t drop unless the 10-year yield also falls. Right now, that yield is about 4.0%, only a little lower than last quarter. Until it moves down more, borrowing costs for new projects and refinancing will stay high.
Why This Matters for Retail Property Owners
Lower short-term rates can help a little because banks can lend more easily. But construction, insurance, and labor costs are still expensive.
In Southern California, even a small drop in rates can help restart stalled projects, especially mixed-use or SB 79-zoned sites near transit. Still, smart underwriting matters: what really drives profit is the gap between your borrowing cost and your property’s cap rate, not what the Fed says.
Across the country, lower rates might bring more 1031 buyers back into the market. But long-term growth depends on whether inflation keeps cooling¹² and the 10-year yield continues to fall.
Investor Takeaways
When the Fed cuts rates, bonds and CDs pay less. That often pushes more money toward retail real estate, especially NNN properties, grocery-anchored centers, and credit-tenant deals. Expect stronger demand and slightly lower cap rates if this trend continues.
Still, be careful. Insurance, property taxes, and operating costs are rising, and retail sales could slow if hiring drops.
What You Can Do Now
• Check your loan, a refinance could save money.
• Revisit project plans, a lower rate might make them work again.
• Review your leases, inflation clauses matter more than ever.
• Track tenant sales, slower hiring hurts some retailers first.
• Expect more buyers for SB 79 or transit-friendly properties.
Bottom Line
The Fed’s cuts sound exciting, but your real borrowing cost still depends on the 10-Year Treasury yield. Keep an eye on that number, it shows when true savings begin.
With rates falling but costs still high, the real question is: Who wins, those who act now or those who wait?
References:
- Bureau of Economic Analysis – PCE Inflation Data (August 2025, 2.7%)
https://www.bea.gov/data/personal-consumption-expenditures-price-index - U.S. Bureau of Labor Statistics – CPI Report (September 2025, 3.0%)
https://www.bls.gov/news.release/cpi.toc.htm - Federal Reserve Press Release – October 2025 FOMC Meeting
https://www.federalreserve.gov/newsevents/pressreleases.htm - Reuters – Fed to Halt Balance Sheet Runoff December 1
https://www.reuters.com/markets/us-fed-halt-balance-sheet-runoff-dec-1-2025-2025-10-30 - Bloomberg Economics – FOMC December Outlook Analysis
Disclaimer: For information only. Not legal, tax, or financial advice.
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